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Leading Global Transformations

Clearly, the shift to selling solutions is not for the fainthearted. So what pushes companies across industries to embark on this journey? When “solutions” provide the answer The impetus to become a solution provider rather than just a supplier of products and services has two primal drivers: survival and growth. The defensive goal is to decommoditize; the offensive goal is to leverage expertise more effectively. The threat of commoditization Some companies are facing the “commoditization trap.” Margins on standardized standalone products are shrinking. Cut-price rivals (or aggressive new intermediaries) with “good enough” products and services are stealing market share from premium brands. 5 This is what happened to Australia-based Orica Mining Services. 6 The product differentiation that had fueled its growth in the commercial explosives industry began to erode. Initially, the company tried to distance itself from imitators by developing more sophisticated products for its customers, such as electronic firing systems that added precision and efficiency to the blasting process. But for many of its customers, these features were of limited appeal. Professor Adrian Ryans explains, “At one point, Orica recognized that customers don’t really want to buy explosives; what they are really buying is rock on the ground – in a quarry or a mine – that meets the customer’s size specification.” 7 So Orica’s leaders switched strategy and started to take over the blasting activities from customers. Over time, the company developed deeper expertise in the different operating conditions of its customers around the world. It was then able to leverage that knowledge to improve the yields of its blasting solutions, creating even higher entry barriers for competitors trying to muscle in on its service business. There were two further benefits. As customers became more reliant on Orica, they progressively lost their in-house blasting skills – indeed specialized blasting personnel were often transferred to Orica – making customers much more dependent on Orica than before. At the same time, the price of the service provided was less transparent than the standalone product, making Orica

The defensive goal is to decommoditize; the

offensive goal is to leverage expertise more effectively.